India’s UPI, or unified payments interface, has grabbed headlines, thanks to the speed at which it is scaling up and the innovations around it. It is expected to receive more attention in the coming years. India plans to export it to other countries, as a key element of “digital public infrastructure”, which was adopted at the recently concluded G20 summit.
India’s UPI, or unified payments interface, has grabbed headlines, thanks to the speed at which it is scaling up and the innovations around it. It is expected to receive more attention in the coming years. India plans to export it to other countries, as a key element of “digital public infrastructure”, which was adopted at the recently concluded G20 summit.
But even outside of UPI, there have been significant changes in India’s financial landscape over the past year. Data from India’s central bank shows cash withdrawals from ATMs have fallen, credit cards are overtaking debit cards, worrying the regulator, and companies are pushing prepaid cards, despite their low returns.
Hello! You are reading a premium article
But even outside of UPI, there have been significant changes in India’s financial landscape over the past year. Data from India’s central bank shows cash withdrawals from ATMs have fallen, credit cards are overtaking debit cards, worrying the regulator, and companies are pushing prepaid cards, despite their low returns.
1. To become cashless
Indians visit ATMs less times now than they did last year and withdraw smaller amounts. The number of ATM cash withdrawals fell by 6% in September 2023, compared to September 2022, while the total value of transactions fell by 1.8%, according to the Reserve Bank of India’s (RBI’s) latest available figures. This is also reflected in the total currency in circulation, which has fallen by almost ₹So far SEK 70,000 million. Part of the reason is the government’s decision to withdraw ₹2,000 notes from circulation in May this year.
At the same time, the total number of ATMs increased by approximately 3,000, or by approximately 1.2%, during this period. Growth was driven by banks deploying more ATMs on-site (within their bank branches), despite closing 3.5% of their off-site ATMs. The number of ATMs owned by non-bank entities (or white-label ATMs), once considered a promising business, remained stagnant.
2. Including ATMs
White-label ATMs were expected to address India’s low rural ATM penetration rates, which are around 15 ATMs per 100,000 adults. However, they have been limited by high capital and operating costs. Micro ATMs – portable machines operated by bank correspondents at a fraction of the cost – help fill the gap. Their numbers doubled between September 2021 and September 2022 and increased by a further 20% over the next 12 months. They are currently about six times the size of regular ATMs.
However, like regular ATMs, cash withdrawals from micro-ATMs also fell year-on-year in September – 1.3% in transactions and 2.4% in value. Their use is expected to take off, driven by new payment banks. Four of the top five adopters of micro-ATMs are payments banks – marketed by NSDL, Fino, India Post and Airtel. In the last year alone, NSDL, Fino and Airtel have together added 479,000 micro-ATMs – about 85% of the standard ATMs in place.
3. Credit boom
Amidst the UPI boom, Indians have also splurged on credit cards. The number of credit cards increased by almost 20% between September 2022 and September 2023. And unlike micro ATMs, they are being used. Credit card payments via point-of-sale (PoS) terminals, typically used by retailers, grew by 9% and by 20% for online and other transactions. This is in contrast to payment cards. While there are 10 debit cards for every credit card, the previous backlog further decreased during this period. Debit card payments decreased by 20% compared to PoS terminals and by 30% on e-commerce platforms and others.
The growth of credit cards is driven by a number of factors, including marketing push and behavioral changes. But such growth has the RBI worried. On November 16, the capital that banks and NBFCs need to set aside for credit card loans increased, which is expected to dampen growth.
4. Prepaid finance
The number of prepaid cards increased by 19% to 328 million in the 12-month period to September 2023. This followed growth of 20% in the previous 12 months. However, the total transaction value dropped by about 40% between September 2022 and September 2023. The average ticket size of transactions also dropped, and is even smaller than the average ticket size of prepaid wallets. All these make prepaid cards uneconomical, compared to prepaid wallets.
Still, an increase in the number of prepaid cards reflects the industry’s new customer acquisition strategy. Although the wallet to card ratio is 4:1, a significant number of users are more comfortable with cards. Politicians see prepaid instruments as important drivers for moving to a cashless economy. It is likely to be driven by prepaid wallets, as smartphone penetration increases. While the number of wallets increased by 4% over the past year, their total transaction value increased by 18%.
5. Thicker borders
While UPI has become the most common way to transfer money in India, there are two other systems that are used to transfer at least ₹5 trillion a month: NEFT (National Electronic Funds Transfer), operated by the RBI, and IMPS (Immediate Payment Service), which, like UPI, is operated by the National Payment Corporation of India. The largest transaction value is NEFT, which transferred almost twice as much as UPI in September 2023.
At 17%, NEFT also saw the largest decline in average ticket size in the 12-month period to September 2023. For UPI, it was 9%, after an 8% decline in the previous 12 months, reflecting its growing user base. New users tend to use it for smaller transactions. Meanwhile, ticket size for IMPS increased by 9% and 16% in these two periods, reflecting its increasing popularity for larger transactions.
www.howindialives.com is a public data database and search engine
#UPI #Indian #payments #space #changing
